ii view: Volkswagen details robust sales and profits

Shares in this automotive giant are down by more than a quarter year-to-date. Buy, sell, or hold? 

Third-quarter results to 30 September

• Revenue up 24% to €70.7 billion
• Operating profit up 53% to €4.3 billion 

Chief financial officer Dr Arno Antlitz said:

“This quarter has once again demonstrated Volkswagen’s financial resilience in a challenging environment was another step towards meeting our full year targets.”

ii round-up:

Automotive giant Volkswagen AG (XETRA:VOW) reported double-digit gains in both revenues and profit for its third quarter, aided by demand for its premium brands, although it has reduced its full-year delivery estimate as supply chain challenges continue. 

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Third-quarter revenue climbed by almost a quarter to €70.7 billion, with operating profit rising 53% to €4.3 billion, helped by an improvement in the profit margin for its premium brands such as Audi, Bentley and Lamborghini. 

Volkswagen shares fell around 2% in post results trading, leaving them down by down by just over a quarter year-to-date. Shares for Mercedes-Benz Group AG (XETRA:MBG) are down by around 15% in 2022, while US rival General Motors Co (NYSE:GM) has fallen by a third year-to-date. 

Full-year deliveries at Volkswagen are now expected to be in line with last year compared to a previous improvement of between 5% and 10% given continued supply chain constraints in semiconductors.

In September, Volkswagen brought its premium brand Porsche Automobil Holding SE Vorz-Inhaber-Akt stimmrechtslos (XETRA:PAH3) to the stock market via an IPO, selling a 12.5% stake to investors. The sale proceeds give VW additional flexibility to implement its electric strategy.

All-electric vehicles for the overall group reached a 6.8% share of total deliveries during the quarter, up from 6.2% this time last year. During the quarter, its first ID.4 vehicles rolled off the production line in the USA. 

Annual results for 2022 are scheduled for 14 March.  

ii view:

Volkswagen operates across the two divisions of automotive and financial services. Its portfolio comprises 12 brands in all segments, from motorcycles to supercars and heavy trucks. Brands include VW itself, Audi, Skoda, Seat, Porsche, Bentley, Lamborghini, Bugatti, MAN and Scania. Europe remains its biggest market, followed by Asia-Pacific and then North America.

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For investors, continued supply chain challenges cannot be ignored. Elevated commodity prices feeding into raw material costs also warrant consideration, as do suspended operations in Russia and a highly uncertain economic outlook including rising interest rates and a cost-of-living crisis. It's also worth remembering the dominant position built by Tesla Inc (NASDAQ:TSLA) in the all-electric vehicle sector. 

On the upside, the diversity of Volkswagen's brands helps even out the ups and downs of each. Moves to ramp-up its electric car production are being made, while a forecast dividend yield of over 4.5% is attractive.

On balance, and given the strength of its brands, this global automaker looks to remain deserving of a place within  diverse and long-term focused portfolios.

Positives: 

• Strong brand names including Audi and Volkswagen
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Continued supply chain challenges

The average rating of stock market analysts:

Buy